Question
Dorians Doggie Daycare (3D for short) is considering acquiring Paulas Puppy Palace, a nearby competitor. After taking a couple of classes at the Harvard Extension
Dorians Doggie Daycare (3D for short) is considering acquiring Paulas Puppy Palace, a nearby competitor. After taking a couple of classes at the Harvard Extension School, Dorian realizes that he should be conducting an NPV calculation to evaluate the economic impact of the potential acquisition. However, Dorian is unclear as to what discount rate he should use. 3Ds shareholders expect to earn 25% and all income is subject to 30% tax. If 3D is currently financed with two thirds equity and one third debt yielding 10% pre-tax. What rate should Dorian use to compute the NPV of the project?
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